Volatility Views

Volatility Views 145: Debating Earnings Skew and Corporate Racism

Volatility Review: A look at the week in vol:

• VIX Cash: High: 22.81, Low: 16.67
• S&P: 30-day IV: 15, 30-day HVOL: 16, Skew Index: 127.54
• VVIX: Thursday close: 98.56
• VIX Options: Total 4.80m (2.86m Calls, 1.95m Puts)
• Market now loving CBOE numbers, stock off 5.5% - earnings were up 7.6%, but missed expectations. Extended VIX Options trading hours start March 2.
• VXST: Another week of anemic volume dispute significant underlying movement.
• RVX: Still no appreciable volume.
• OIL: Another crazy week for oil - rallies over 20%, then clipped, the rallied more again. Currently hovering above the $50 strike again.

Volatility Voicemail: Listener questions and comments

• Reply from Ernitin14 - @OptionsInsider love Vol Views show. Here's my counterargument on remarks on skew shape. If everybody is hedging their short bet, vol squeeze is very likely which is exactly what happened in GOOG post earnings. Yes ATM call spread were the best plays, in case it was a win - win situation. Blow out numbers - upside explosion, so-so numbers- covering their shorts. What I am missing?
• Question from Uncle Ben - Liked the discussion on risk premium from the last episode. This is a topic I have always struggled with. It seems like you are chasing your tail either way. If you compare straightforward 30-day implied vol vs. historic vol, then you are comparing an indicator that is really 30 days forward with an indicator that is nearly 30 days lagging. It does not make much sense. If you attempt to extrapolate realized vol forward, you run into the same errors that plague implied volatility. There are millions of dollars spent on volatility forecasting models that cannot get it right, so what chance do I really have with my own little algorithm? Is this all a fool’s errand?
• Comment from Alvo - Hey guys - just a note that 30-day historical vol actually measures about 20 trading sessions, with 30-day implied vol foes out a full month. Different size sets = problems.

Crystal Ball: Andrew and Jared prognosticate wildly.

Volatility Views 106: HFT and Volatility

Volatility Review: It was a mild week with the VIX around the 13-handle for most of the week. Did premiums increase going into the non-farms announcement, or did the market shrug as with other recent non-farms? March VIX futures rose 20% year-over-year. VIX futures also set a new quarterly volume record when 12.38 million contracts traded, up 35% compared to the first quarter of 2013.

Volatility Voicemail: You direct the conversation

• Question from George - Big fan of the show - been listening for years. I think Jared is a great addition to the panel. There is a lot of talk about HFT firms manipulating stock markets in the wake of the Michael Lewis book Flash Boys. I have seen lots of talk about price manipulation, but I keep coming back to all of your discussions on Volatility Views, and it makes me wonder - why is no one talking about volatility as it relates to HFT? Are the firms adding volatility to the marketplace? Could these firms be responsible for a lot of the vol of vol that we see in the marketplace right now? Particularly in very active name or in some of the volatility ETFs? Keep up the great show!
• Question from EVO16 - I am a regular user of VXX. I have heard you refer repeatedly to the cost of rolling this product and how it negatively impacts holders. Is there anything I as a regular VXX owner can do to minimize this? Are there other ETFs out there that attempt to do this?

Crystal Ball: An outlook for VIX, RVX and VIX ETPs.

Volatility Views 104: Revisiting Risk Management

Volatility Review: Vol is being bid up. VXST options coming April 10, and the full day of VIX futures trading in mid-June. Nat gas futures tapering off a bit. Metals chat includes gold, silver and copper.

Volatility Viewpoint: A review of the many panels at the Risk Management Conference from this last weekend.

Crystal Ball: An outlook for VIX, RVX and VIX ETPS.

Volatility Views 108: VIX & More with Bill Luby

Volatility Review: Today’s guest is Bill Luby, founder of the VIXandMore.com blog. It was a relatively quiet week for VIX, mostly drifting down toward the 13 handle until today. An aggressive selloff boosted volatility across the board. VIX Futures are catching bids as well. VIX options activity today: 4/1 calls over puts. Is there any sign of life in VXST?

India VIX reaches record highs. Kospi 200 volatility index hits record lows last week.

Volatility Voicemail: Panels for advisors, volatility re: valuations, earnings, scanning tools, and more.

• Question from Sanjay Patel - I have to agree with the hosts regarding the discussion from episode 104 regarding VIX ETPs and RIAs or family offices. I have been active in the advisor community for several decades, following all of the latest research and attending many industry conferences. I have never encountered a single study or panel devoted to this issue or a fellow advisor who utilizes these products. My evidence is all anecdotal but I would think that if advisors made up a significant portion of those flows I would have encountered that by now. I just wanted to share my thoughts with your listeners. Thank you for reading my question. Please continue to produce this fine program as well as the Advisors Option. They speak to very unique audience.
• Question from Even_Star - Is it possible to run options valuations models using actual rather than implied volatility levels? I think this would give a truer approximation of the options value when you strip away all of the nonsense that comes from implied volatility.
• Question from Haweye - Aside from Apple last week and Google last cycle, it seems like most companies are dramatically underperforming their straddles during earnings season. Microsoft and Amazon are simply the latest names to fall victim to this trend. To what do you attribute this trend? Why are traders so consistently overestimating volatility going into earnings announcements this year? This would seem to be a good environment for a risk defined premium harvesting strategy, such as an iron condor or iron fly.
• Question from James Norman - Love the Volatility Views show. Great content. Great guests. Keep them coming. I would like to ask a question about tools, in particular scanners. You have discussed scanners for unusual activity and changes in implied Vol on previous shows. Do you know of any tools that scan for changes in implied volatility skew? I am looking to capture skew distortions that allow me to leg into verticals, ratios and risk reversals at highly attractive levels. Does such a tool exist? I did not know where else to turn, but I know Mark and the Volatility Views team will not let me down!

Crystal Ball: FOMC, Q1 GDP, ISM and the employment report (plus earnings) - all in one week!

Volatility View 97: Consulting Volatility

Volatility Review: So much for single digit VIX cash in Q1. VIX options call/put nearly 3 to 1 right now, hovering at record size. People still loving VIX upside - size open interest all the easy up to the Feb 60 strike. Current RVX open interest at 2700 contracts, traded 250 lot yesterday, the zealots are out in RVX.

Volatility Voicemail:

Comment from Jason Ungar - Hi, Mark: I hope you are well. I just heard your (latest, I think) podcast which included a question about the PUTs consistent outperformance of the BXM. I know you wanted to look into this, and I think I may be able to help. While it is tempting to ascribe the differential to the PUTs puts carrying a higher IV than the BXMs calls, there is almost invariably only a 5 point spread between the two option's strikes, and this is too narrow to capture any significant amount of skew. The actual reason for the difference is a bit more complicated and has to do with the indexes' settlement methodologies. As I am sure you know, index options settle against the Special Opening Quotation, which was instituted by the CME as a way to price expiring S&P 500 futures. The SOQ captures the opening price of all 500 components of the S&P 500, and the anomaly is that on expiration Fridays the SOQ often comes in at a premium to the cash open. The precise reason for this is unknown, but it may have to do with the action of market makers buying back the futures they used to hedge short put positions. The CME and CBOE are aware of this (see the included "Understanding the SOQ" pamphlet and note the consistent positive spread between the SOQ and the cash open and the reference to the SOQ "occasionally departing from index values".) The reason the high SOQ is relevant is that it causes the BXM to purchase expiring ITM calls at a premium and the PUT to purchase expiring ITM puts at a discount. This is compounded by the tendency of the market to open strong on expiration and then to tail off. This is good for the PUT, which is out of the market for the first two hours of trading, and bad for the BXM, which is long the market until new calls are sold beginning at 11:30 eastern. You can do an easy test to confirm this. Just line up the daily returns for both indexes (available for download at cboe.com), and note that the greatest differentials (usually in the PUT's favor) almost always occur on expiration Fridays. I have included a JAI paper on the PUT I coauthored with Matt Moran as well as a follow up article. I would be happy to discuss any of this. All the best, Jason Ungar

Question from Hannibal Smith - What is the Volatility Views panels take on the recent announced VolDex product from ISE and Nations Shares? Is it a credible competitor to VIX?

Crystal Ball: Heading for more of the same trouble in VIX land?